SUBJECT MATTER 6 - Quiz

AAS1
1st Sem
1. When an independent auditor expresses an unqualified opinion he asserts that:

(1) He performed the audit in accordance with generally accepted auditing standards.
(2) The company is a profitable and viable entity.
(3) The financial statements examined are in conformity with GAAP.
(4) The financial statements are accurate and free of errors.
a. All of the above statements are true.
b. Only statements (1) and (3) are true.
c. Only statements (2) and (4) are true.
d. All of the above statements are false.
2. An audit report should be dated as of the
a. date the report is delivered to the entity audited.
b. date the financial statements were approved by the client management.
c. balance sheet date of the latest period reported on.
d. date a letter of audit inquiry is received from the entity’s attorney of record.
3. If a company’s external auditor expresses an unqualified opinion as a result of the audit of the
company’s financial statements, readers of the audit report can assume that
a. The external auditor found no fraud.
b. The company is financial sound and the financial statements are accurate.
c. Internal control is effective.
d. All material disagreements between the company and external auditor about the application
of accounting principles were resolved in the satisfaction of the external auditor.
4. A statement that the auditor’s responsibility is to express an opinion on the financial statements
is contained in the:
a. Opening paragraph c. Opening and scope paragraph
b. Scope paragraph d. Opinion paragraph
5. The description of an audit in the scope paragraph of the standard audit report includes all of
the following except:
a. Evaluating the overall financial statement presentation.
b. Assessing control risk.
c. Examining, on a test basis, evidence supporting the amount and disclosures in the financial
statements.
d. Assessing the accounting principles used and significant estimates made by management.
6. The audit report is normally addressed to the:

Board of directors Stockholders Chair of the Audit Committee
a. No Yes No
b. Yes Yes No
c. Yes Yes Yes
d. Yes No Yes
7. If comparative financial statements are presented and the present auditor has audited both
years, the auditor should:
a. Reissue the report c. Redate the report
b. Dual date the report d. Update the report
8. In which of the following situations would the auditor appropriately issue a standard unqualified
report with no explanatory paragraph concerning consistency?
a. A change in the method of accounting for specific subsidiaries that comprise the group of
companies for which consolidated statements are presented.
b. A change from an accounting principle that is not generally accepted to one that is
generally accepted.
c. A change in the percentage used to calculate the provision for warranty expense.
d. Correction of a mistake in the application of a generally accepted accounting principle.
AT-5906
AAS1
1st Sem
9. An auditor’s report contains the following sentences:

We did not audit the financial statements of B Company, a consolidated subsidiary,
whose statements reflect total assets and revenues constituting 20 percent and 22
percent, respectively, of the related consolidated totals. These statements were audited
by other auditors, whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for B Company, is based solely upon the report of the
other auditors.
These sentences
a. disclaim an opinion c. divide responsibility
b. qualify the opinion d. should not be part of the audit report
10. The management of a client company believes that the statement of cash flow is not a useful
document and refuses to include one in the annual report to stockholders. As a result, the
auditor’s opinion should be
a. qualified due to inadequate disclosure c. adverse
b. qualified due to a scope limitation d. unqualified
11. An auditor’s opinion reads as follows: “In our opinion, except for the above-mentioned
limitation on the scope of our audit…” This is an example of a(n)
a. review opinion c. qualified opinion
b. emphasis on a matter d. unacceptable reporting practice
12. Eagle Company’s financial statements contain a departure from generally accepted accounting
principles because, due to unusual circumstances, the statements would otherwise be
misleading. The auditor should express an opinion that is
a. Qualified and describe the departure in a separate paragraph.
b. Unqualified but not mention the departure in the auditor’s report.
c. Qualified or adverse, depending on materiality, and describe the departure in a separate
paragraph.
d. Unqualified and describe the departure in a separate paragraph.
13. An auditor is unable to determine the amounts associated with illegal acts committed by a
client. The auditor would most likely issue
a. Either a qualified opinion or a disclaimer of opinion.
b. An adverse opinion.
c. Either a qualified opinion or an adverse opinion.
d. A disclaimer of opinion.
14. The objective of the consistency standard is to provide assurance that
a. There are no variations in the format and presentation of financial statements.
b. Substantially different transactions and events are not accounted for on an identical basis.
c. The auditor is consulted before material changes are made in the application of accounting
principles.
d. The comparability of financial statements between periods is not materially affected by
changes in accounting principles without disclosure.
15. If management fails to provide adequate justification for a change from one generally accepted
accounting principle to another, the auditor should
a. Add an explanatory paragraph and express a qualified or an adverse opinion for lack of
conformity with generally accepted accounting principles.
b. Disclaim an opinion because of uncertainty.
c. Disclose the matter in a separate explanatory paragraph(s) but not modify the opinion
paragraph.
d. Neither modify the opinion nor disclose the matter because both principles are generally
accepted.
16. When an auditor qualifies an opinion because of inadequate disclosure, the auditor should
describe the nature of the omission in a separate explanatory paragraph and modify the
Introductory paragraph Scope paragraph Opinion paragraph
a. Yes No No
b. Yes Yes No
c. No Yes Yes
d. No No Yes
17. An auditor may not express a qualified opinion when
a. A scope limitation prevents the auditor from completing an important audit procedure.
AAS1
1st Sem
b. The auditor’s report refers to the work of a specialist.

c. An accounting principles at variance with generally accepted accounting principles is used.
AAS1
1st SEM
d. The auditor lacks independence with respect to the audited entity.

18. An auditor decides to express a qualified opinion on an entity’s financial statements
because a major inadequacy in its computerized accounting records prevents the auditor
from applying necessary procedures. The opinion paragraph of the auditor’s report should
state that the qualification pertains to
a. A client-imposed scope limitation.
b. A departure from generally accepted auditing standards.
c. The possible effects on the financial statements.
d. Inadequate disclosure of necessary information.
19. Totoy, CPA, was engaged to audit the financial statements of Bibo Co., a new client, for
the year ended December 31, 2004. Totoy obtained sufficient audit evidence for all of
Bibo’s financial statement items except Bibo’s opening inventory. Due to inadequate
financial records, Totoy could not verify Bibo’s January 1, 2004 inventory balances.
Totoy’s opinion on Bibo’s 2004 financial statements most likely will be
Balance Sheet Income Statement
a. Disclaimer Disclaimer
b. Unqualified Disclaimer
c. Disclaimer Adverse
d. Unqualified Adverse
20. When management prepares financial statements on the basis of a going concern and
the auditor believes the company may not continue as a going concern, the auditor should
issue a(n)
a. qualified opinion
b. unqualified opinion with an explanatory paragraph
c. disclaimer of opinion
d. adverse opinion

SUBJECT MATTER 6 - Quiz

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SUBJECT MATTER 6 - Quiz

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AAS1

1. When an independent auditor expresses an unqualified opinion he asserts that:

6. The audit report is normally addressed to the:

9. An auditor’s report contains the following sentences:

b. The auditor’s report refers to the work of a specialist.

d. The auditor lacks independence with respect to the audited entity.

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